The fastest way to eliminate PMI?

[Justin Jolliffe]

I'll cut straight to the point:

I am purchasing a 3 family to house hack and I want to get rid of PMI as soon as possible. Here are the numbers.

Purchase Price: $335,000

Gross Income $3600.

I have the money to put down 3.5%, even 5%, but which one is better to do? As of right now, I am thinking that placing 3.5% down on the house and putting my leftover money in the stock market, and consistently adding to it every month for a few years until I have a reasonable chunk of change. Then, I can dump it all into the house (Assuming the stock market does well) to reach a 20% equity stake, refinance and eliminate PMI.

I just can't stand the thought of my money sitting there in the house if it isn't working for me.  Until I get to the 20% mark, it seems foolish to put it towards the principal other than to marginally lower interest payments.  I am betting the stock market will do at least better than that option.

Am I approaching this the right way?

[Chris Mason]

Originally posted by @Justin Jolliffe:

I'll cut straight to the point:

I am purchasing a 3 family to house hack and I want to get rid of PMI as soon as possible. Here are the numbers.

Purchase Price: $335,000

Gross Income $3600.

I have the money to put down 3.5%, even 5%, but which one is better to do? As of right now, I am thinking that placing 3.5% down on the house and putting my leftover money in the stock market, and consistently adding to it every month for a few years until I have a reasonable chunk of change. Then, I can dump it all into the house (Assuming the stock market does well) to reach a 20% equity stake, refinance and eliminate PMI.

I just can't stand the thought of my money sitting there in the house if it isn't working for me.  Until I get to the 20% mark, it seems foolish to put it towards the principal other than to marginally lower interest payments.  I am betting the stock market will do at least better than that option.

Am I approaching this the right way?

Find someone local to you that offers Freddie Mac's 95% conventional LTV 2-4 unit program and will do a side-by-side.

FHA advantage: "Only" 3.5% down. DTI can sometimes be up north of 50%.

FHA disadvantage: Mortgage insurance is there for the life of the loan (you can refi to drop the MI, but what if rates at that point are back to historically normal levels of 7% or so?), and 1.75% UFMIP gets tacked onto your loan balance. 3.5% down + 1.75% UFMIP = 5.25%. FHA "self sufficiency" test can be a dealbreaker that does not come up until 2-3 weeks into the process.

FHLMC advantage: No funding fee tacked onto loan balance. PMI can be cancelled without needing to refinance, keeping the rate you locked when you purchased (this makes discount points more viable -- lock in a killer permanent rate while rates are low, keep it when you drop PMI!). Offer is seen as more attractive by listing agents. Your 5% down is 5% towards equity, there's no 1.75% getting tacked onto your loan balance. 

FHLMC disadvantage: "Larger" 5% down (but still less than 5.25% big picture). PMI is more expensive with bruised credit. Normal DTI requirement.